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When Two Distributors Become One

Last year, a number of mergers and acquisitions took place in the electrical industry, where both suppliers and distributors joined forces create larger entities with more buying power and great economies of scale. Not always easy to undertake, these business “marriages” take time and patience to cultivate, and can significantly impact (at least for a period of time) the way the newly-formed companies do business with their customers and suppliers.

In the end, the goal is for both companies to come out stronger and more competitive. This was the case with Crescent Electric’s 2017 acquisition of Womack Electric Supply. Headquartered in East Dubuque, Ill., the former is the eighth largest electrical distributor in the U.S. A nearly-century-old, family-run business, Crescent serves contractors, institutional, and industrial customers with a broad line of electrical, industrial, and datacomm products from 160 national locations. Founded in 1938, the smaller, acquired distributor had grown from a single location to become a leader in the Virginia and North Carolina markets.

In mid-2017, Crescent and Womack became one, essentially creating a merger of equals on merits like reputation and market presence (albeit Womack was the smaller of the two companies). The acquired firm continues to operate as a standalone business supported by Crescent resources, but under the Womack name and with the same employees, leadership team and suppliers.

Tim Young, corporate strategy facilitator at Crescent Electric Supply, says the merger has been fruitful for both companies. He visits Womack approximately once a month, and during the acquisition process supported the required due diligence and other tasks. His job is also to assess the acquired firm’s culture and internal value-added services to determine ways to “bring the best of two worlds together.”

Growing its Footprint
Always on the lookout for new acquisition opportunities, Crescent is continually adding to its footprint and joining forces with “great companies that are a good match for us,” says Young. “Womack was definitely one of those.” And while it’s been less than a year since the final closing documents were signed in July, Young says the pairing is already working out well for both entities.

“It’s going great; Womack is a great company,” says Young, noting that Crescent’s approach is to leave as much of its acquisition targets’ businesses intact, even after the deals close and the two entities become one. “We don’t look to change anything so we don’t really try to integrate them into Crescent’s way of doing things; we want them to stay who they are and to be who they are.”

Where the larger firm does put an emphasis is on backend integrations of human resources, payroll, and information technology—all of which can help streamline processes and save money for the combined entity. “Womack is still using its own systems, but we’re able to help them take advantage of some of our company’s scale,” says Young, “particularly in areas like reporting.”

Industry M&A Trends
In assessing overall industry consolidation trends within the electrical segment, Young sees acquisitions as a viable way for companies to grow without having to add more of their own locations, staff, and overhead. And, the acquiring firm usually gets the benefits of years of experience, an established reputation in one or more markets, and knowledgeable managers and employees—many of whom bring new perspectives and problem-solving skills to the table.

“Through acquisitions, companies can add staff in an environment where recruiting new employees is pretty challenging,” says Young, noting that in many cases, adding staff through acquisitions is a more stable and secure way to beef up a firm’s pool of human resources. “It’s hard to recruit employees right now, and especially if you’re not already operating in a specific market. Through acquisitions, you can grow a little faster and get a quicker return on investment.”

Having sold his own company (Interstate Electric Supply) to Crescent in 2013, Young says one of the main drivers behind the sale was the need to gain better economies of scale and access to systems that the smaller entity didn’t have access to on its own. “It has allowed us to do more and play in bigger markets, and have more capabilities than we’d be able to have with our small scale,” says Young.

Plus, he continues, as smaller firms become part of a larger entity, capabilities like e-commerce and stepped-up value-added service offerings become more attainable. “It quickly changes the scope of what you can do, particularly when it comes to your e-presence and your value-added offerings,” says Young. “Since being acquired in 2013, we’ve also gained access to better reporting systems and other things that are just too cost prohibitive for smaller firms to buy and manage.”

More M&A Ahead
Looking ahead, Young expects more electrical distributors to take steps to merge with one other and/or purchase smaller firms that allow them to expand inorganically. He points to e-commerce and to innovations like the Internet of Things (IoT)—or the connection of devices (other than computers and smartphones) to the Internet—as a major driver for distributors to join forces and better leverage their capabilities as conjoined forces.

“I think we’re going to see a lot of small and midsized distributors either looking to become part of bigger entities in order to be able to compete more effectively in certain arenas,” says Young. “Whether that means competing with Amazon, tapping into another entity’s ability to provide different value-added services, or just competing more effectively with larger distributors.”

For now, Crescent’s acquisition strategy will remain intact as it gears up for a successful 2018 and the possibility of more M&A activity in the future. “We’re always looking for great partners to work with,” says Young, “and for great candidates that would like to become part of the Crescent brand.”

SIDEBAR

From the Supplier’s Perspective: M&A isn’t Going Away

As a third-generation, family-owned manufacturer of residential and commercial meter sockets, meter pedestals, RV/mobile home power supply systems, enclosed controls, switches, hubs, generators, and energy management solutions, Kansas City, Mo.-based Milbank relies on a network of electrical sales reps to market, sell, and support its products to a national audience of distributors.

When two of those distributors merge into one, Milbank usually has to take a step back to assess the situation, determine its position with the newly-formed entity, and then come up with a plan of action for working together with the new company. “Any time distributors merge together or acquire one another, we have to make sure our systems sync up with theirs,” says Chris Buelow, VP of sales and marketing, “to ensure, for example, that we’re invoicing everything accurately.”

And because Millbank relies solely on reps to market its products to the distribution channel, the M&A situation gets complicated when larger distributors buy smaller ones and then want to start shipping from a “central distribution center” (as opposed to using DCs that are situated within a certain geographical territory).

From the sales and marketing perspective, Buelow says that when a distributor that’s had a long-standing relationship with Milbank acquires one that the manufacturer hasn’t historically worked with, the results are generally positive. “It’s obviously good for us,” he adds, “because we then we can try to access that expanded opportunity.”

On the flip side, if a company that Milbank hasn’t been working with on a regular basis acquires one of its stronger distributor-partners, a level of uncertainty can ensue. “It’s usually unknown as to what’s going to happen next,” says Buelow, who expects M&A activity to continue both on the supplier and the distributor side in 2018. As those transactions occur, Milbank will assess them on a case-by-case base and develop plans of action for dealing with them.

Bridget McCreais a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

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Discussion (1 comments)

Thomas Beebe February 8, 2018 / 3:30 pm

Some comments by Milbank personalities above demonstrate the rationale for point-of-sale reporting. Some distributors resent this as intrusive, and their sentiments need be heard. I suggest such reports be stripped of buyers’ identities and show only the approximate locations of the purchasers.